Did Doubling Reserve Requirements Cause the Recession of 1937-1938? A Microeconomic Approach
In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.
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- Charles Calomiris & David Wheelock, 1998.
"Was the Great Depression a Watershed for American Monetary Policy?,"
in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 23-66
National Bureau of Economic Research, Inc.
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- Cargill, Thomas F. & Mayer, Thomas, 2006. "The Effect of Changes in Reserve Requirements During the 1930s: The Evidence from Nonmember Banks," The Journal of Economic History, Cambridge University Press, vol. 66(02), pages 417-432, June.
- James A. Wilcox, 1984. "Excess Reserves in the Great Depression," NBER Working Papers 1374, National Bureau of Economic Research, Inc.
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